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Fed Is Said to Criticize Deutsche Bank’s Oversight and Reporting Efforts

By Matthew Goldstein July 22, 2014 8:58 pmJuly 22, 2014 8:58 pm

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Deutsche Bank’s headquarters in Frankfurt. A lawyer said a regulator told the bank in December to fix problems that had existed for several years.Credit Ralph Orlowski/Reuters

Deutsche Bank’s primary regulator in the United States has found serious problems with the bank’s financial reporting procedures and oversight, a lawyer briefed on the matter said on Tuesday.

Jordan Thomas, a lawyer who represents a former Deutsche Bank risk analyst who filed a whistle-blower claim against the bank, said that regulator, the Federal Reserve Bank of New York, sent a letter in December to officials at the German bank notifying them of the findings of its review.

Mr. Thomas said he had seen a copy of the letter and it directed Deutsche to fix problems in its financial reporting procedures — problems the letter said had existed for several years.

The letter coincided with a push by United States regulators for banks, especially ones based overseas, to be held to the same capital requirements as American banks. The Fed wanted the tougher measures to avoid a need for future taxpayer bailouts of financial institutions in the event of another financial crisis.

Deutsche Bank, one of Europe’s largest banks, was a forceful opponent of the Fed’s push to force foreign banks to comply with the same capital requirements as domestic banks. Officials from Deutsche Bank argued that the Fed’s requirement was too restrictive.

This year, the Fed went ahead with those tougher capital requirements for foreign banks. But it gave most of them until the middle of 2016 to comply.

In a statement, Deutsche Bank declined to comment on the letter, which was reported earlier by The Wall Street Journal. A bank spokeswoman said on Tuesday that it had been working for months to stiffen its operations.

“We have been working diligently to further strengthen our systems and controls and are committed to being best in class,” said Michele Allison, a Deutsche Bank spokeswoman, who added that the bank was spending more than $1.3 billion and employing 1,300 people toward this effort.

American depositary receipts of Deutsche Bank fell nearly 3 percent in late trading on the New York Stock Exchange.

Mr. Thomas said the New York Fed’s findings were consistent with complaints raised by his client, Eric Ben-Artzi, in a whistle-blower action filed with the Securities and Exchange Commission in 2011. Mr. Ben-Artzi, a former quantitative risk analyst, told the agency he had evidence that Deutsche Bank had hidden billions of dollars in losses to avoid a potential bailout during the financial crisis.

The complaint by Mr. Ben-Artzi and a similar one raised by another former Deutsche Bank employee, Matthew Simpson, are the focus of an investigation by the S.E.C. that is believed to still be active. German banking authorities are also conducting their own investigation into the accusations, which concerned the reported mispricing of assets held in a portfolio of sophisticated derivatives.

For years, Deutsche Bank officials have steadfastly denied the accusations that the bank deliberately mispriced assets to conceal the magnitude of its losses during the financial crisis.

Still, the letter from the New York Fed would appear to confirm that complaints raised by Mr. Ben-Artzi and Mr. Simpson about inadequate risk controls and faulty financial reporting at Deutsche Bank were not isolated events. Mr. Simpson, a former derivatives trader at the bank, filed his own whistle-blower complaint against the bank in 2010.

“These revelations are consistent with Dr. Ben-Artzi’s allegations in light of the culture he described at Deutsche Bank,” said Mr. Thomas, who heads the whistle-blower practice at Labaton Sucharow. “The findings of the Fed are not surprising.”

Mr. Thomas said he could not discuss the S.E.C. investigation but had every reason to believe it was continuing.

A spokesman for the S.E.C. was not available for comment. Christopher Chang, the lawyer for Mr. Simpson, declined to comment.

A version of this article appears in print on 07/23/2014, on page B3 of the NewYork edition with the headline: Fed Is Said to Criticize Deutsche Bank’s Oversight and Reporting Efforts.